Behavioural flexibility and reputation formation.

ABSTRACT

Limited flexibility in behaviour gives rise to behavioural consistency, so that past behaviour is partially predictive of current behaviour. The consequences of limits to flexibility are investigated in a population in which pairs of individuals play a game of trust. The game can either be observed by others or not. Reputation is based on trustworthiness when observed and acts as a signal of behaviour in future interactions with others. Individuals use the reputation of partner in deciding whether to trust them, both when observed by others and when not observed. We explore the effects of costs of exhibiting a difference in behaviour between when observed and when not observed (i.e. a cost of flexibility). When costs are low, individuals do not attempt to signal that they will later be trustworthy their signal should not be believed since it will always pay them to be untrustworthy if trusted. When costs are high, their local optimal behaviour automatically acts as an honest signal. At intermediate costs, individuals are very trustworthy when observed in order to convince others of their trustworthiness when unobserved. It is hypothesized that this type of strong signalling might occur in other settings.